“prospect theory.” The theory is amazingly rich, but at its core, it’s based on a very basic idea. The way people actually make decisions often violates standard economic assumptions about how they should make decisions. Judgments and decisions are not always rational or optimal. Instead, they are based on psychological principles of how people perceive and process information. Just as perceptual processes influence whether we see a particular sweater as red or view an object on the horizon as far away, they also influence whether a price seems high or a deal seems good. Along with Richard
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